In the excitement of buying a new home, many people tend to put the cart before the horse. They will shop around with only a vague idea of what their realistic budget is, resulting in broken hearts and dashed dreams.
Buying a home is not something anyone should take lightly. It’s always important to go into purchasing a house with as much information as possible.
To help explain why approaching a lender before a real estate agent is important, we’ve compiled a list of reasons for you.
1. It Will Help You Understand Your Financial Situation
The home buying process should not be approached like an impulse buy. Several factors should be considered when applying for a mortgage. If you don’t have a clear idea of what your financial situation is, looking at homes can be a waste of time. When you find a home you love, you don’t want to learn you can’t afford it.
Talking to a lender will allow you to see your credit score, your debt-to-income ratio, and which current debts could cause a problem.
If your finances aren’t in great shape, you can then speak with the lender about strategies to improve your situation. There are several tips they can offer you to get your financial situation more stabilized.
2. Identify Potential Obstacles You Will Need To Overcome
Now that you have a better idea of your financial status, you can take a look at how you’re going to achieve your goal. The number of loans you have, how many hard credit checks have been done, and what your income is will all affect your ability to get a mortgage.
Credit Score – Having a credit score above 658 will be a huge help in purchasing a home. If it’s 601-657, you might be able to get a mortgage approval, you will struggle with higher interest rates.
Hard Credit Checks – Every time you apply for a loan or a new credit card, the lender will check your credit score. This is called a hard credit check because they look at your credit score before allowing you to apply for a loan. Even if you don’t get the loan, that hard credit check is still there.
Soft credit checks won’t affect your credit rating. These are checks that lenders make before offering you a loan or credit card.
Extra Debt – Perhaps you didn’t realize that your student loans would play such a significant role in purchasing a home, but they will. Even if you can comfortably afford your student loan, it lowers your debt-to-income ratio and will limit your options.
Income – It’s also possible that you simply don’t have the income to afford the house you need. If you’re looking to move from an apartment to a family home, it might not be feasible for you. You may have to consider looking for better employment or asking for a raise at work.
3. To Ensure You Are Getting Competitive Interest Rates
Banks don’t just give you a mortgage for free. They make their money back from you by charging interest on your mortgage loan.
What you need to understand is there are no standard interest rates when getting a mortgage. Every bank can be different. If you’re not going through a bank, you will definitely want to know what the rates are going to be. They tend to be higher through private lenders.
It is also a good time to discuss variable and fixed-rate mortgages. Depending on the one you choose, your interest rate can fluctuate significantly over the years.
4. To Impress The Sellers
In a seller’s market, where there is a higher demand for a house than the number currently on the market, the person selling their house holds quite a few cards. Sometimes homes can be sold within hours of being listed.
In those situations, you want to have an advantage over other home buyers. One of the ways to do this is to have a pre-approved mortgage that meets the cost of the house you’re considering. You will be assuring the seller you do have the funds available for this purchase. They won’t have to worry about the deal falling through due to financial issues.
5. You Can See Unexpected Costs
Those who are serious about purchasing a new home will build a budget. There are many costs to consider when building your budget.
Most people are aware of some of the costs you’ll be incurring, such as the cost of the home, agent fees, and interest rates. However, other costs can be easily overlooked, especially if you’re a first-time home buyer.
Home Inspections – It’s always a good idea to have a home inspection done before you purchase a home. This will allow you to find out the extent of the repairs you may have to make on your new home. The inspection comes with a cost, and you’ll want to have that covered.
Legal Fees – Your mortgage is a legal document, at the very least notaries and paralegals will need to be involved. Some people choose to work with a lawyer, and those rates can vary.
Earnest Money Deposit – Many people don’t realize that they need to have a certain amount of money set aside to put as a deposit when giving an offer on a new home. This is a percentage of the cost of the home and shows the seller you’re serious about the purchase.
6. Get The Paperwork Done Early
There is a substantial amount of paperwork involved in a mortgage. To get a mortgage, you need to provide financial records like pay stubs or a Notice of Assessment. Gathering some of these documents can be time consuming and could leave you feeling flustered in the moment.
However, by speaking to a lender first, you will already be aware of the required paperwork and have it in order. By talking to the lender before you start the home buying process, you will already have your financial papers in order.
If you speak to a lender ahead of time, you are making it easier to go through the actual purchasing process. Disorganization can lead to a stressful situation quickly, which can lead to unwise decisions.
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